Savills market report shows demand is currently outstripping supply for prime opportunities
ALTHOUGH THE investment property market is being constrained by the banking crisis and a poor supply of buildings, overall turnover for the first nine months was 95 per cent higher than for the same period of 2009, according to the latest market report from estate agent Savills.
Turnover from January to the end of September is expected to reach €243 million, compared to an overall figure for 2009 of only €140 million. Joan Henry, head of research at Savills, says that, if deals already in the pipeline are completed in the final quarter, turnover should exceed €700 million for 2010.
Michael Clarke of Savills investment team says a breakdown of the 41 transactions this year shows 80 per cent of the properties had more than 10 years unexpired on the leases. The sales included the first industrial investment transactions since 2009, with two properties sold for around €12 million.
Of the 12 investment sales in the third quarter, seven were in the retail sector and accounted for €68.5 million. Much of the demand for investments is being driven by private individuals who are focusing on smaller, secure lot sizes of up to €5 million. Savills also report continuing interest from international investors looking at lot sizes over €20 million. “Demand is now outstripping supply for prime opportunities,” says Clarke.
With little new stock coming on the market, the value of available investments slipped by 25 per cent over the last three months. It now totals €181 million, compared to €242 million at the end of the second quarter. Savills says virtually all of this stock consists of “non-prime assets” for which there is little demand. Supply was at its lowest level since 2005 but a number of investment properties were being discreetly offered for sale, which would boost the supply by several hundred million.
The report contends that prime retail yields have stabilised at 6.25 per cent following a number of transactions on Dublin’s Grafton Street. Similarly, prime office yields had settled at 7.25 per cent. It suggests that the supply of investments will increase before year-end as “vendors start to position themselves for potential disposals”. These sales were likely to include properties from Nama and the banks.
“The increase in supply will not be very significant in the short term and it will remain difficult to source quality properties producing secure income streams,” according to the report. It suggests there is potential for prime yields to harden if high quality properties become available.
